How do I know if my shop is profitable on labor?

Compare labor revenue against technician wages and benefits, and track billed hours against paid hours. Low efficiency or undercharged labor is often masked by parts markup until parts prices move.

How should core charges be recorded?

Core charges are usually tracked as deposits and supplier credits rather than ordinary sales and purchases, though the right treatment depends on how your supplier handles returns. Treating them as ordinary sales and purchases inflates both sides and hides losses on unreturned cores.

Can my race program be a business expense?

Only where it genuinely promotes the business or operates as a business with a profit motive. The documentation matters, and hobby-level racing run through a shop is an area the IRS examines closely.

Who I work with

Accounting for automotive and motorsport shops

Repair shops, performance and tuning shops, fabrication, detailing and motorsport businesses carry parts inventory, expensive equipment and technicians whose time is the product. The books need to show margin on parts and labor separately.

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What the books need to handle

Parts and labor margin

Parts and labor tracked separately on every ticket, so you know whether the shop is making money on its time or only on markups.

Parts inventory and core charges

Inventory valued at cost, special orders and core deposits tracked, and shrinkage caught through regular counts.

Equipment, lifts and vehicles

Large purchases, shop vehicles and trailers depreciated correctly and planned around the tax year.

Race programs and sponsorships

Where a race or event program is part of the business, sponsorship income and related costs tracked so the program’s real cost or return is visible.

Numbers worth tracking monthly

Effective labor rate

Labor revenue per hour actually sold, after discounts and warranty.

Technician efficiency

Billed hours against clocked hours, by technician.

Parts gross margin

Parts revenue against parts cost, including freight and returns.

Comeback cost

Rework and warranty cost, which comes straight out of margin.

Balance sheet accounts I keep workpapers on

Each of these is supported every month by a workpaper that ties the balance to a source document, so the number can be trusted and followed by anyone who reviews it.

Parts inventory

Valued at cost and counted regularly, with special-order parts tracked to the ticket.

Core deposits and credits

Cores owed to suppliers and deposits collected from customers, tracked until returned or settled.

Customer deposits

Money taken up front on builds and large jobs, held as a liability until the work is done.

Work in process

Labor and parts on open repair orders at month end, so long jobs do not distort the month.

Month-end close for automotive and motorsport shops

Open repair orders reviewed and work in process recorded
Parts purchases matched to tickets and inventory
Core returns and credits reconciled with suppliers
Technician time reconciled to billed hours
Customer deposits on builds held as liabilities
Sales tax on parts reconciled

Tax

Tax considerations

Sales tax on parts and labor

Parts are generally taxable. Whether labor is depends on the state and how the invoice is written.

Equipment expensing

Lifts, diagnostic tools and fabrication equipment can often be written off in the year bought, timed around the year’s income.

Shop and personal vehicles

Vehicles used for the business need records of business use. Parts runners, trailers and demo vehicles each have their own treatment.

Race programs

Deductible where they promote the business or run with a genuine profit motive, and documented to show it.

General information, not advice for your specific situation. Call 239-896-6799 to talk through yours.

How I help

Common questions

How do I know if my shop is profitable on labor?: Compare labor revenue against technician wages and benefits, and track billed hours against paid hours. Low efficiency or undercharged labor is often masked by parts markup until parts prices move.
How should core charges be recorded?: Core charges are usually tracked as deposits and supplier credits rather than ordinary sales and purchases, though the right treatment depends on how your supplier handles returns. Treating them as ordinary sales and purchases inflates both sides and hides losses on unreturned cores.
Can my race program be a business expense?: Only where it genuinely promotes the business or operates as a business with a profit motive. The documentation matters, and hobby-level racing run through a shop is an area the IRS examines closely.

Other industries

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